[Am-info] Enterprises ignore Microsoft's volume-licensing plan

[Gene Gaines]

Quoted from:
Email newsletter TechTarget - The Most Targeted IT Media
Copyright 2002, All Rights Reserved.


Enterprises ignore Microsoft's volume-licensing plan

By Garry Kranz

Given an additional year to examine its implications, most companies are
either unprepared -- or unwilling -- to sign up for Microsoft's new
volume-licensing deal.

Microsoft Corp. has blinked twice on full-scale implementation of its new
volume-licensing program, but the Redmond, Wash.-based software giant won't
flinch a third time, according to industry experts."If I were in Microsoft's
shoes, I would not want to revise it one more time," said Gartner Group
analyst Alvin Park, referring to Microsoft's Volume Licensing 6.0 program.
"I don't think Microsoft will make any other changes until after the July 31
(2002) deadline."

As the deadline approaches to either enroll in the controversial new licensing program, or face the
prospect of purchasing product upgrades at full price, many companies are choosing to do nothing. 
Gartner estimates 65% of existing Microsoft customers have not begun to analyze the plan's complex 
licensing options, a failure that could cost them untold amounts of money down the road.

Another survey, conducted by Information Technology Intelligence Corp. (ITIC) of Boston, Mass., and 
Sunbelt Software of Clearwater, Fla., published similar findings. More than 63% of about 1,400 
respondents in that survey indicated they hadn't scrutinized the plan's implications.

 
Analysts say Microsoft's inability to explain the welter of licensing terms, 
options and sketchy pricing is to blame. "I haven't met anyone who 
understands this," said Laura DiDio, principal of ITIC. "It's very confusing 
and it doesn't matter what size your company is."

D-Day approaching

Licensing 6.0 is an annuity-based software-licensing program, similar to 
a maintenance agreement that users can ink with Microsoft. IT 
executives have until July 31 to decide whether they want to enroll in the 
new program and its new upgrade option, called Software Assurance, 
which is replacing the older Upgrade Advantage option. Users could forgo 
the three-year Licensing 6.0 agreement in favor of Open or Select 5.0 
volume licensing contracts, along with Upgrade Advantage, that will run 
for two years from date of purchase. Microsoft will continue selling those 
plans through July 31, 2002. That also is the last day enterprises can fold 
existing Microsoft licenses into Software Assurance.

Users that don't choose one of those options by July 31 would have to 
purchase new Microsoft licenses at full price when they do upgrade. 
Previously, under Upgrade Advantage and other options, Microsoft 
enabled users to receive new versions of software at their own pace and 
for a discounted rate. Microsoft unveiled the new licensing plan in May 
2000, but twice extended the enrollment deadline because customers 
complained.

Software Assurance entitles users to buy discounted upgrades as they 
become available. Analysts say organizations that upgrade every two 
years could realize a cost savings. Organizations that upgrade less 
frequently would experience the opposite.

Under Software Assurance, Microsoft will charge enterprises 29% of the 
list price of client licenses and 25% of the retail price of server licenses. 
Users must be running the most current software versions available to 
qualify for enrollment in Software Assurance.

"Microsoft is doing this because it can. Software Assurance is really 'revenue assurance' for 
Microsoft," says Randy Britton, spokesman for IT asset management firm Tally Systems of Lebanon, 
N.H.

Rebecca LaBrunerie, Microsoft's program licensing manager, told SearchWin2000 the move was made 
to simplify pricing and upgrades. "We removed those confusing upgrade options and replaced it with 
Software Assurance, so going forward you (would) have the choice to buy only the license or the 
license with Software Assurance," she said.

Switching to Software Assurance could end up costing some enterprises about one-third more than 
Upgrade Advantage, DiDio said. "It's more expensive, you pay for three years instead of two, and 
certain things aren't included unless you fight hard to negotiate them back in," she said, including 
Microsoft's BackOffice, SQL, FrontPage and Publisher products.

Make way for subscription models

Gartner predicts Software Assurance contracts could raise fees as much as 107% for enterprises that 
upgrade every three years. Park says the breakeven point for upgrading server licenses is about four 
years, while for desktop products it is 3.45 years.

Still, some enterprises stand to benefit. Denver Water, which supplies drinking water to nearly 1 
million customers in Colorado, is among the 35% or so of enterprises to enroll early. The 700-desktop 
enterprise purchased an Enterprise Agreement under Licensing 6.0 last year, soon after Microsoft 
announced its new plan. Pam Peschel, business support specialist for the utility, said she has 
reservations about the cost but has learned to appreciate some of the advantages -- especially 
Microsoft's compliance monitoring feature for tracking where software is installed on a network. "We 
have a paper trail on reinstalled software that's just unbelievable," she said. "It's a lot easier to do a 
count of installs and reinstalls (using Enterprise Agreement) than it is to do paper tracking."

The sluggish response rate to Microsoft's 6.0 program could work in users' favor. DiDio says 
customers who are in compliance with existing Microsoft licenses may have the upper hand when 
bargaining. Microsoft is behind on new product initiatives, existing products have not been adopted 
as rapidly as expected, and licensing revenue has fallen, so Microsoft has incentive to negotiate. 
"Inertia is Microsoft's biggest enemy," DiDio said.

Microsoft is not the only vendor to change its licensing scheme. IBM and Oracle are enacting similar 
initiatives, a sign that software vendors are gravitating toward software-leasing models, said Park. 
"At some point, it will become more attractive for enterprises to rent software than purchase it. We 
think that's where a lot of software vendors would like to be long term," in five or six years.

As to what Microsoft-run enterprises are likely to do between now and July 31, no one has a good 
answer. But DiDio has some cautionary words to companies that have been procrastinating. "Just 
because you may not have the money to move doesn't mean you shouldn't be studying it and getting 
prepared. That's just plain stupid."


Quoted by
Gene Gaines
gene.gaines@gainesgroup.com
Sterling, Virginia